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Problem Set 5 - More Optimization Problems

AD distributes 15 frozen vegetable products and must decide how much of each product to purchase each week to maximize profits. The company has a $30,000 budget to purchase products in quantities between the minimum required by contracts and maximum estimated sales. The optimal product quantities must be determined to maximize profits within these constraints. Coco Scents produces perfume, cologne, and body spray using limited supplies of the expensive ingredient ambergris. It must determine the optimal product mix and quantities to produce to maximize after-tax net income, given minimum sales requirements and costs of ingredients and production for each product.

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Ritabhari Banik Roy
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77 views3 pages

Problem Set 5 - More Optimization Problems

AD distributes 15 frozen vegetable products and must decide how much of each product to purchase each week to maximize profits. The company has a $30,000 budget to purchase products in quantities between the minimum required by contracts and maximum estimated sales. The optimal product quantities must be determined to maximize profits within these constraints. Coco Scents produces perfume, cologne, and body spray using limited supplies of the expensive ingredient ambergris. It must determine the optimal product mix and quantities to produce to maximize after-tax net income, given minimum sales requirements and costs of ingredients and production for each product.

Uploaded by

Ritabhari Banik Roy
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Problem Set 5 – More Optimization Problems

1. Auchan Distributors
The product portfolio problem asks which products a firm should be making. If there
are contracts that obligate the firm to enter certain markets, then the question is
which products to make in quantities beyond the required minimum. Consider
Auchan Distributors (AD), a company that distributes 15 different vegetables to
grocery stores. AD’s vegetables come in standard cardboard cartons that each take
up 1.25 cubic feet in the warehouse. The company replenishes its supply of frozen
foods at the start of each week and rarely has any inventory remaining at week’s end.
An entire week’s supply of frozen vegetables arrives each Monday morning at the
warehouse, which can hold up to 18000 cubic feet of product. In addition, AD’s
supplier extends a line of credit amounting to $30,000. That is, AD is permitted to
purchase up to $30,000 worth of product each Monday.
AD can predict sales for each of the 15 products for the coming week. The forecast
is expresses in terms of a minimum and a maximum level of sales. The minimum
quantity is based on a contractual agreement that AD has made with a few retail
grocery chains; the maximum quantity represents an estimate of the sales potential
in the upcoming week. The unit cost and unit selling price for each product are
known. The given data are compiled in the following table.

Product Cost ($) Price ($) Minimum Maximum


Whipped Potatoes 2.15 2.27 300 1500
Creamed Corn 2.20 2.48 400 2000
Blackeyed Peas 2.40 2.70 250 900
Artichokes 4.80 5.20 0 150
Carrots 2.60 2.92 300 1200
Succotash 2.30 2.48 200 800
Okra 2.35 2.20 150 600
Cauliflower 2.85 3.13 100 300
Green Peas 2.25 2.48 750 3500
Spinach 2.10 2.27 400 2000
Lima Beans 2.80 3.13 500 3300
Brussel Sprouts 3.00 3.18 100 500
Green Beans 2.60 2.92 500 3200
Squash 2.50 2.70 100 500
Broccoli 2.90 3.13 400 2500

What quantities of each product should AD buy to maximize profit?


2. Coco Scents Inc.
A common problem in manufacturing businesses is deciding on a product mix for
different items in the same product family. Coco Scents Inc. makes a premium
collection of perfume, cologne, and body spray for sale in large department stores
and boutiques. The primary ingredient is ambergris, a valuable digestive secretion
from whales that is harvested without harming the animals. Ambergris costs more
than $9,000 per pound and is very difficult to obtain in large quantities; Coco Scents
can only obtain about 20 pounds of ambergris each year. The other ingredients—
deionized water, ethanol, and various additives—are available in unlimited
quantities for a reasonable cost.
Create a spreadsheet model for Solver to determine the optimal product mix that
maximizes Coco Scents’ net income after taxes.
You are given the following information:
Body Spray Cologne Perfume
Sales price/bottle $11.95 $21.00 $53.00
Conversion Cost per $2.60 $6.50 $13.00
Unit (Direct Labor plus
Manufacturing
Overhead)

Minimum Units 60000 25000 12000


Required (minimum
amount to be supplied to
customers)
Income Tax Rate 32%
Sales, General and $0.30
Administrative
Expenses per Dollar
Revenue

Cost per lb, Deionized $0.50


Water

Cost per lb, Ethanol $1.00

Cost per lb, Other $182.00


Additives
Cost per lb, Ambergis $9072.00

The bill of materials is the list of raw materials and ingredients required to make one
unit of a product.
Bill of Materials Body Spray Cologne Perfume
Deionized Water 0.1 0.1 0.05
(lb/unit)
Ethanol (lb/unit) 0.1 0.02 0.01
Other Additives 0.01 0.001 0.0001
(lb/unit)
Ambergis (lb/unit) 0.0001 0.00018 0.00055

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